The truth is out there ... in offshore accords
Despite feds' claims to the contrary, increased oil royalties for province are spelled out in documents
by John Crosbie

The title of the Sept. 30th Telegram Forum by Stephane Dion was "The feds beg to differ Mr. Crosbie." The federal minister of Intergovernmental Affairs was responding to my Sept. 9th forum in which I lamented the failure by the Government of Canada to honour the commitments made to Newfoundland and Nova Scotia in their respective offshore accords.

Well, unfortunately for all Canadians, Mr. Dion has it wrong. In particular he has the wrong attitude.

The two offshore accords of 1985 and 1986 were expected to settle the ownership dispute over non-renewable offshore oil and natural gas between the federal and provincial governments, by agreeing on joint management and revenue sharing for these resources.

During that process, three prime ministers (Trudeau, Clarke and Mulroney) and several mines and energy ministers, including Jean Chretien, made solemn promises, entrenched to legally binding agreements that Newfoundland and Nova Scotia would be the "principal beneficiaries" of the oil and gas resources off their coastlines.

As things have turned out, the federal government receives in excess of 80 per cent of the revenues generated from these offshore resources, while Newfoundland and Nova Scotia receive less than 20 per cent.

Who does this indicate is the "principal beneficiary?" The Concise Oxford Dictionary defines "principal" as "first in rank or importance, chief, main, leading." Who is the chief, main or leading beneficiary of these revenues if no change occurs? Obviously, the Government of Canada.

Problems continue
This unconscionable situation will continue with the active support of the federal government, when at the same time these two provinces are experiencing suffocating financial pressures. In the fiscal year 2000-2001, Newfoundland had a total debt burden of $9 billion, for a per capita debt of $16,636, and debt-carrying charges of $409 million, or 14.65 percent of total revenues.

During the same year, Nova Scotia's total debt was in excess of $11 billion or $11,675 per capita, while interest costs were $909 million, or 10.6 per cent of total revenues. This financial situation will soon wreak havoc on public services such as health, education and social services.

This certainly can't be what the federal government would like to see happen. But it will, if the harsh and inflexible attitude of Minister Dion is firmly adopted as the attitude of the Chretien government, and of ministers such as Brian Tobin, Paul Martin and Allan Rock, who aspire to lead future Liberal administrations.

Mr. Dion's article resorts to shallow logic and deflecting tactics such as "the accords do, indeed, make Newfoundland and Nova Scotia 'principal beneficiaries' of offshore development since they provide them with 100 per cent of offshore oil and gas royalties." He goes on to state, "Ottawa has fully respected the letter and the spirit of these commitments."

He hides behind the so-called equalization "70/30 general tax-back" which, he says, gives the provinces a much better deal than they would get under the accords. He fails to mention the "general tax-back" element was introduced by the federal government in 1994, nine years after Newfoundland's Atlantic Accord and eight years after Nova Scotia's Offshore Accord, and was initially directed at solving Saskatchewan's potash grievances and Quebec's asbestos disincentives.

It was not part of the original accords and the "principal beneficiary" commitment to both provinces. One has to ask if Mr. Dion is putting forth this argument to divert the public from the Government of Canada's failure to fulfill its commitment to the accords.

The equalization offset mechanism Mr. Dion defiantly refers to was known and agreed to by all parties, but it did not work as everybody forecast. For example, the offset period for Nova Scotia has effectively come and gone, and the total net royalty benefits to that province from its offshore oil and gas projects as of December 31, 2000 were $16.7 million.

Is this being the "principal beneficiary" of multibillion-dollar offshore projects? Instead, the province will now receive the federal/provincial revenue split (70/80) that other Canadian provinces would receive on any tax base where it has 70 per cent of that total national tax base.

This can't possibly be what both the federal and Nova Scotia governments intended when they forecasted the potential offshore revenues in the early 1980's, and thought them to be so large they could foresee lifting Nova Scotia's fiscal capacity to 110 per cent of the national average or even higher.

I will turn the argument around for Mr. Dion. If the federal government had a financial problem and Newfoundland (or any province) had the capacity to help, we would undoubtedly send some of our revenues to their treasury.

In effect, we did this four times in the 1970-80's and again in 1982. During 1974, 1977, 1979 and 1980, the federal government unilaterally, and in some cases, retroactively, adjusted the equalization formula to reduce payments to the provinces, thereby increasing their own revenues. These changes cost the provinces billions of dollars in reduced equalization payments.

In 1982, the equalization formula was fundamentally changed from a 10-province standard to the current five-province standard. The most significant element of that new formula was the elimination of Alberta, so that its large revenues from oil and gas were deleted from the calculation of equalization entitlements for all provinces. That change, and other subsequent adjustments, have saved the Government of Canada in excess of $31 billion from 1982-83 to 2001-2002.

When Mr. Dion says he needs the approval of all the other provinces to make any changes to equalization, he is conveniently forgetting the many unilateral adjustments his government has made in the past.

And Mr. Dion got it wrong when he said, "since 1982 the laws of Canada have required that all natural resource revenues be taken into account when calculating equalization transfers to provinces."

Alberta's natural resource revenues, the largest value of natural resource revenues in the nation, have not been part of the equalization payments calculations since 1982.

In the past I have been very impressed with Mr. Dion's forthright expression of views and, in particular, his handling of the national unity issue. I have even suggested facetiously that Prime Minister Chretien needed "Dion quintuplets" in his cabinet. But since Sept. 24 and the unfeeling and brazen attitude Mr. Dion displayed towards two other distinct but economically disparaged societies, I think there may be one Dion too many.

Finally, Mr. Dion's claim that Newfoundland and Nova Scotia are getting a better deal than other provinces get, or have gotten from their natural resources, is just not correct.

From 1869 onwards, the federal government transferred huge areas of Crown-held dominion lands in the North and West, when all Canadians had owned them, to Ontario, Quebec, Saskatchewan, Alberta and Manitoba. These non-renewable petroleum and mineral resources, hydro resources, and other sub-soil rights have become the foundation of the economies and wealth generation of these provinces, an outcome supported by all Canadians.

When Quebec and Ontario were extended sub-soil rights at those earlier times, the Constitution Act of 1930 was enacted to ensure that sub-soil rights were deeded to the Prairie provinces, including Alberta. There has been no similar or such equitable treatment of offshore natural resources in Atlantic Canada by the Government of Canada. Why does this discrimination against the Atlantic provinces continue?

Newfoundland and Nova Scotia have fulfilled the prime national objectives as contained in the accords. Their oil and natural gas resources are being developed and depleted, while Canada's security of energy supplies had improved tremendously, Canada's exports will continue to grow and North America has benefitted from the development of our East Coast offshore resources.

This whole problem can be fixed and the intent of the accords carried out if the other full partner to these agreements, the federal government, were to simply permit Newfoundland and Nova Scotia to retain 100 per cent of the revenues from offshore resources, that does not claw-back any of these revenues until the two provinces reach the national fiscal capacity standard.

No effect on other provinces
Newfoundland and Nova Scotia each have a specifically defined "tax base" to the current equalization formula for their offshore oil and offshore gas revenues. Therefore, permitting them to retain all of the revenues will not cause any equalization or financial impact on any of the other nine provinces, contrary to what is implied in some of Mr. Dion's statements.

Until Newfoundland and Nova Scotia reach the national standard as originally contemplated in these accord agreements, the only impact is that the federal government will deduct less from those two provinces's equalization payments.

If the Government of Canada takes the action I suggest, Newfoundland and Nova Scotia will have a real opportunity to catch up to national economic standards over the next 20 years from the proceeds of their own depleting non-renewable resources. This is the one and only chance either will have to accomplish this.

So we appeal to our fellow Canadian provinces to support our request to the federal government that it correct the unfair treatment of Newfoundland and Nova Scotia arising from not honouring the accord agreements. We will not rest until we become the "principal beneficiaries" of the natural resources off our shores.

As for his claim that Newfoundland and Nova Scotia will "receive significantly greater benefits than those envisaged at the time the original accords were signed," my question to Mr. Dion is the one that little old lady used to ask in the TV ad: "Where's the beef?"

- St. John's Telegram, Sunday, October 21, 2001